MILWAUKEE — Briggs & Stratton Corp. recently announced financial results for its second fiscal quarter ended December 31, 2017.
- Fiscal second quarter net sales were $446 million, an increase of $18 million, or 4.2%, from $428 million for the prior year from continued favorable momentum in sales of engines and products designed for commercial markets.
- Quarterly gross profit margin of 20.8% (GAAP) and adjusted gross profit margin of 21.1% decreased from a gross profit margin of 22.3% last year primarily due to sales mix and lower production volumes as anticipated.
- Second quarter net loss of $16.3 million, or $0.39 per share (GAAP), included a $24.9 million one-time charge as a result of the implementation of the Tax Cuts and Jobs Act of 2017 ("Tax Reform") as well as business optimization charges. Excluding these items, adjusted net income was $10.7 million, or $0.25 per diluted share.
- The company's estimated effective tax rate for fiscal 2018 is expected to be in a range of 29% to 31%, excluding business optimization costs and the one-time charge from implementing Tax Reform.
- The company is increasing its fiscal 2018 earnings outlook to $1.45 to $1.62 per diluted share, before business optimization costs and the one-time charge from implementing Tax Reform, from previous guidance of $1.41 to $1.58 per diluted share due to the reduction in the planned effective tax rate.
"At the halfway point in our fiscal year, I am pleased to report that we are solidly on track to meeting our annual and long-range goals," said Todd J. Teske, Chairman, President and Chief Executive Officer. "Highlights from our second quarter results included growth of our commercial offerings as well as a modest contribution from follow-on generator sales due to the hurricanes this past fall. We also made nice strides in advancing our business optimization program, and we remain on schedule with this important initiative to support growth and long-term profitability improvement." Teske continued, "Looking forward to the upcoming lawn and garden season, our engine placement is set and it is consistent with last season as we had anticipated. We continue to introduce new, innovative residential products and engines that provide substantially better performance and benefits for home owners. We are also encouraged by continued positive growth trends for new and existing single-family homes. Accelerating our momentum in growing sales of our commercial offerings remains a key focus for us, and we expect that our new products and engines this year will result in further success. The new offerings are designed to improve the productivity of people who use our equipment to earn a living."
Tax Reform
As a result of the Tax Cuts and Jobs Act of 2017, the company recognized a one-time charge of $24.9 million in the second quarter from the estimated impact of the inclusion of foreign earnings and revaluation of deferred tax assets and liabilities. Excluding this charge as well as the costs of the company's business optimization program, the company expects the reduction in the corporate tax rate will result in an effective tax rate of approximately 29% to 31% (previously 31% to 33%) for fiscal 2018. Given the mid-year change in the corporate tax rate, the company's fiscal 2018 effective tax rate is comprised of a blend of the pre and post-tax reform tax rates. Beginning in fiscal 2019, the company's effective tax rate is expected to decrease to a range of approximately 26% to 28%.
Outlook:
Updated fiscal 2018 guidance:
- Net sales are expected to be in a range of $1.91 billion to $1.96 billion, up from previous guidance of $1.90 billion to $1.95 billion, due to follow-on generator sales to date through the end of the second quarter.
- Net income is expected to be in a range of $62 million to $70 million (previously $60 million to $68 million), or $1.45 to $1.62 per diluted share (previously $1.41 to $1.58 per diluted share), due to the reduction in the planned effective tax rate. This outlook is prior to the benefit of share repurchases and excludes the costs of the business optimization program and the one-time implementation charge related to Tax Reform.
- Operating margins are expected to remain unchanged from previous guidance of approximately 5.8% to 6.0%, prior to the impact of costs related to the company's business optimization program. Management expects the modest contribution from follow-on generator sales in the second quarter to be offset by incremental promotional investment in the upcoming quarter to further promote the company's innovative products to new and existing homeowners.
Second Quarter Highlights for Engines:
- Engine sales unit volumes decreased by 10%, or approximately 180,000 engines, in the second quarter of fiscal 2018 compared to the same period last year. The decrease was primarily due to an acceleration of international sales into the first quarter of fiscal 2018, as well as management's anticipation that domestic customers will produce closer to the lawn and garden season this year. Sales of service parts to the company's service distribution venture were also lower this year due to a planned seasonal inventory reduction initiative. Partially offsetting the sales decline were increased sales of commercial engines.
- Gross profit percentage decreased due to approximately 5% lower manufacturing volume and unfavorable sales mix, which includes lower service parts sales. Higher material costs were offset by modest pricing increases.
- ESG&A increased by $2.5 million (GAAP) and $2.4 million (adjusted) from last year due to higher employee compensation costs and the investment in the upgrade to the company's ERP system.
Second Quarter Highlights for Products:
- Net sales increased by $31.4 million, or 16.5%, from the same period last year. The increase was primarily due to higher sales of commercial job site products, commercial lawn and garden equipment and snow throwers. Generator sales were slightly lower in the second quarter of fiscal 2018 given the prior year's second quarter net sales included the impact of Hurricane Matthew.
- Gross profit percentage and adjusted gross profit percentage decreased by 70 basis points and 40 basis points, respectively, primarily due to a 4% reduction in manufacturing throughput. Production of pressure washers and residential riding mowers was lower in the quarter in order to right size inventory levels, which were elevated coming out of last season.
- ESG&A increased by $2.4 million (GAAP) and $2.1 million (adjusted) compared to last year due to higher compensation costs, higher commissions expense on increased sales volume and higher costs associated with investments to upgrade the company's ERP system and growing commercial offerings.
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